Show me the money —

UK set to impose new “tech tax” on Silicon Valley giants

London wants Google, Amazon, and others to "shoulder the burden of this new tax."

Enlarge/ LONDON - Chancellor of the Exchequer Philip Hammond poses with the budget box at 11 Downing Street before the announcement of the Autumn Budget Statement in the House of Commons on October 29, 2018.

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Britain's top financial official has included a new "tech tax" in the country's latest budget that would affect some of the world’s largest firms, including Apple, Google, Facebook, and others.

Called the "UK Digital Services Tax," Chancellor of the Exchequer Philip Hammond said that this new tax would be "narrowly targeted" to go after the "UK-generated revenues" of these firms. The tax appears to attempt to legally offset efforts by numerous tech and other corporate giants to drastically minimize their tax burden in the United Kingdom and elsewhere.

In 2012, a British parliamentary committee chided executives from Amazon, Google, and even Starbucks for employing such tactics. Margaret Hodge, then the public accounts committee chair, slammed Google's Northern European operations chief, saying, "We're not accusing you of being illegal; we are accusing you of being immoral."

It is not entirely clear how exactly the new "UK-generated revenues" will be measured—the new 2018 budget states that the tax would "apply to revenues from those activities that are linked to the participation of UK users."

"It will be carefully designed to ensure it is established tech giants—rather than our tech startups—that shoulder the burden of this new tax," Hammond said in a Monday speech before the House of Commons.

"It is important that I emphasize that this is not an online-sales tax on goods ordered over the Internet. Such a tax would fall on consumers of those goods—and that is not our intention. The Digital Services Tax will only be paid by companies which are profitable and which generate at least £500m a year in global revenues in the business lines in scope."

Hammond also noted that the tax is scheduled to go into effect in April 2020 and is expected to raise £400 million per year, or more than $512 million.

Ars contacted Apple, Google, Facebook, Twitter, Tesla, Amazon, Uber, and Airbnb to see if they would attempt to oppose the measure.

Meanwhile, Samuel Brunson, a tax law professor at Loyola University Chicago, told Ars that companies likely would not be able to "minimize" a user's residency for tax purposes—but it may not necessarily be a huge windfall just yet.

"Because so many of these companies are based in the US, the UK right now has a limited ability to tax them," he emailed.

"Facebook, for instance, mostly doesn’t get its revenues directly from users. And if an advertiser pays Facebook to show ads to its UK users, that may not be UK-source income, so the UK may not be able to tax it under current rules. Imposing this tax, then, lets the UK reach some revenue that is outside its traditional scope. It makes sense; digital services are become a huge financial force, but the broad contours of our international tax system was designed when physical products and in-person services dominated. This tax doesn’t fully capture the 21st-century economy, but it starts to at least recognize it."

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Cyrus Farivar
Cyrus is a Senior Tech Policy Reporter at Ars Technica, and is also a radio producer and author. His latest book, Habeas Data, about the legal cases over the last 50 years that have had an outsized impact on surveillance and privacy law in America, is out now from Melville House. He is based in Oakland, California. Emailcyrus.farivar@arstechnica.com//Twitter@cfarivar

285 Reader Comments

"We're not accusing you of being illegal; we are accusing you of being immoral."

Well, at least they're trying to go about fixing it the right way - changing the tax laws, instead of just whining that the tech companies don't pay enough taxes (while, presumably, doing the same thing for their own tax returns).

Though at some point, I do wonder what happens if the tech companies decide Europe isn't worth the hassle and simply block the continent.

It will be carefully designed to ensure it is established tech giants—rather than our tech startups—that shoulder the burden of this new tax

This, right here, is the "go fuck yourself" line. Wanna establish a tax to capture revenue generated as a result of UK citizens? Ok, sure, whatever. But then there's no reason to only go after the tech giants. It seems like your worry isn't so much to make people accountable for revenue generated as a result of UK citizens, but to just milk companies with deep pockets.

"We're not accusing you of being illegal; we are accusing you of being immoral."

Well, at least they're trying to go about fixing it the right way - changing the tax laws, instead of just whining that the tech companies don't pay enough taxes (while, presumably, doing the same thing for their own tax returns).

Though at some point, I do wonder what happens if the tech companies decide Europe isn't worth the hassle and simply block the continent.

Why would you block yourself from a 740 million people relatively wealthy market?

"Mr. Hammond said that while a global agreement “is the best long-term solution,” progress has been “painfully slow.” The U.K. said its new tax would only be in force until a global solution is found, but Mr. Hammond said “we cannot simply talk forever.”

Inspired by European Union proposals to impose a tax based on the revenue of tech companies rather than their profit, South Korea, India and at least seven other Asian-Pacific countries are exploring new taxes. Mexico, Chile and other Latin American countries too are contemplating new taxes aimed at boosting receipts from foreign tech firms.

Such taxes, which are separate from the corporate income taxes many companies already pay, are broadly known as digital taxes and could add billions of dollars to companies’ tax bills. They seek to impose levies on digital services sold by global companies in a given country from units based outside that country. In some cases, the proposed taxes target services involving the collection of data about local residents, such as targeted online advertising."

I don't like how narrowly they are targeting this. Make a fair and balanced law, don't try to just go after a few companies you don't like.

I also dislike them calling Google "immoral" for using perfectly legal tax techniques. Don't like the technique, fix it. I do everything I can (legally) to get the biggest tax refund on my taxes every year. I'm sure everyone else does the same. Am I immoral for not just giving extra money to the government?

"We're not accusing you of being illegal; we are accusing you of being immoral."

Well, at least they're trying to go about fixing it the right way - changing the tax laws, instead of just whining that the tech companies don't pay enough taxes (while, presumably, doing the same thing for their own tax returns).

Though at some point, I do wonder what happens if the tech companies decide Europe isn't worth the hassle and simply block the continent.

Why would you block yourself from a 740 million people relatively wealthy market?

While I doubt it'd ever reach that point, the point where you would cut them off is when they start costing them more than they are making. It isn't free to deliver those services.

While I doubt it'd ever get to that point... the EU seems to be doing its damnedest right now to find that point.

"We're not accusing you of being illegal; we are accusing you of being immoral."

Well, at least they're trying to go about fixing it the right way - changing the tax laws, instead of just whining that the tech companies don't pay enough taxes (while, presumably, doing the same thing for their own tax returns).

Though at some point, I do wonder what happens if the tech companies decide Europe isn't worth the hassle and simply block the continent.

Why would you block yourself from a 740 million people relatively wealthy market?

Unless I read it wrong this would only apply to the UK and not the whole of Europe. So 65ish million people.

Is this just a "pay this tax" scheme, or will the taxed organizations also be able to benefit from write-offs like other taxed companies? Either way, the overseas retaliation or tax minimization results should be hilarious.

I generally approve of "narrow targeting" of excise taxes on booze or tobacco or whatever. I'm a lot more leery of "narrow targeting" to selectively tax one business instead of another, when both are nominally in the same line of work. It's not a huge leap from there to picking and choosing who wins and who loses on a company-by-company basis. Possibly to the sound of cheers, if your government is taxing the foreign company to give a leg up to the domestic one. Deciding "who shoulders the burden", in their own words.

When released, this genie may not want to go back in his bottle. Trade wars are not good and they are not easy to win.

It's worth a trivial amount at the moment but it seems a good idea to at least get a mechanism in place to see if the tax can realistically be levied, and if there are any adverse effects. Seems worth at least dipping a toe in the water to test things out. It'll either provide a model for other countries to follow, be a prototype for building a better way of doing it, or be quietly forgotten if it fails.

It will be carefully designed to ensure it is established tech giants—rather than our tech startups—that shoulder the burden of this new tax

This, right here, is the "go fuck yourself" line. Wanna establish a tax to capture revenue generated as a result of UK citizens? Ok, sure, whatever. But then there's no reason to only go after the tech giants. It seems like your worry isn't so much to make people accountable for revenue generated as a result of UK citizens, but to just milk companies with deep pockets.

Its targeted at large companies because until you are a large company, which he took to be defined as £500m in global revenue, you (probably) don't have enough money to be worth engaging in the sort of immoral evasion the companies engage in.

You don't engage in the sort of tax avoidance they do I'm sure. You could, but it would be fruitless because you're a regular person and it would cost you more to pay the department of accountants and lawyers it takes to run than you'd save... This is focused this way because it's a loophole only the well-of companies can afford, not small start-ups barely ticking over.

"We're not accusing you of being illegal; we are accusing you of being immoral."

Well, at least they're trying to go about fixing it the right way - changing the tax laws, instead of just whining that the tech companies don't pay enough taxes (while, presumably, doing the same thing for their own tax returns).

Though at some point, I do wonder what happens if the tech companies decide Europe isn't worth the hassle and simply block the continent.

Why would you block yourself from a 740 million people relatively wealthy market?

Because america and Canada alone provides a market nearly half as big with half the rules and that's not to mention China and India. At some point its just not going to be worth the hassle.

"We're not accusing you of being illegal; we are accusing you of being immoral."

Well, at least they're trying to go about fixing it the right way - changing the tax laws, instead of just whining that the tech companies don't pay enough taxes (while, presumably, doing the same thing for their own tax returns).

Though at some point, I do wonder what happens if the tech companies decide Europe isn't worth the hassle and simply block the continent.

Why would you block yourself from a 740 million people relatively wealthy market?

Because america and Canada alone provides a market nearly half as big with half the rules and that's not to mention China and India. At some point its just not worth the hassle.

Yeah god forbid they have to tag data as UK revenue generating. Oh wait they already do that/??

"We're not accusing you of being illegal; we are accusing you of being immoral."

Well, at least they're trying to go about fixing it the right way - changing the tax laws, instead of just whining that the tech companies don't pay enough taxes (while, presumably, doing the same thing for their own tax returns).

Though at some point, I do wonder what happens if the tech companies decide Europe isn't worth the hassle and simply block the continent.

They are unlikely to block anyone, the cost of compliance is still far less than the loss in revenue if they where to start blocking an entire country. Though they could lower their investment in UK in retaliation if they wanted to be petty.

It will be carefully designed to ensure it is established tech giants—rather than our tech startups—that shoulder the burden of this new tax

This, right here, is the "go fuck yourself" line. Wanna establish a tax to capture revenue generated as a result of UK citizens? Ok, sure, whatever. But then there's no reason to only go after the tech giants. It seems like your worry isn't so much to make people accountable for revenue generated as a result of UK citizens, but to just milk companies with deep pockets.

Its targeted at large companies because until you are a large company, which he took to be defined as £500m in global revenue, you (probably) don't have enough money to be worth engaging in the sort of immoral evasion the companies engage in.

You don't engage in the sort of tax avoidance they do I'm sure. You could, but it would be fruitless because you're a regular person and it would cost you more to pay the department of accountants and lawyers it takes to run than you'd save... This is focused this way because it's a loophole only the well-of companies can afford, not small start-ups barely ticking over.

Which begs the question: why is it so narrowly targeted when only those companies are using those tactics?

Why would you block yourself from a 740 million people relatively wealthy market?

Because it costs more in money, fees, and "royal pain in the ass" than you think it's worth to serve it. Or you're willing to make less money to "make the point" about how absurd some of the requirements are.

A while back, if I recall properly, some country said "Ok, our newspapers are saying you're stealing their news, either start paying them for showing blurbs or else!" - and Google went "Ok, we'll just stop indexing their content for news." And the newspapers walked that idea back in a hurry as their online readership dropped to roughly zero.

European nations are perfectly welcome to encourage tech innovation and tech companies out there, but they seem very content to just figure out how much they can harass US tech companies and tax them. I'm certain that if Facebook said "Well, you know, forget it..." in certain countries, those politicians would be voted out in a hurry.

Though at some point, I do wonder what happens if the tech companies decide Europe isn't worth the hassle and simply block the continent.

Why would they?

Remember the taxes that they're dodging aren't on revenue, but on profit; paying the correct percentage of profit in taxes doesn't make you an unprofitable business.

The tax could be 90% of profit, but it'd still be silly to leave as rage quitting a market with hundreds of millions of customers is a perfect way to lose 100% of that profit instead.

Regarding this specific announcement by the Tories in the UK… eh I'd need to see details; this is a party that literally had a stand advertising the Cayman Islands as a tax haven at its party conference this year.

They are not a party well known for actually taking action on tax avoidance (quite the opposite in fact, given they keep cutting taxes during an alleged period of austerity).

From the sounds of it they're attempting to target new taxes against tech giants, rather than actually closing the loopholes that allow the existing taxes to be avoided in the first place.

It will be carefully designed to ensure it is established tech giants—rather than our tech startups—that shoulder the burden of this new tax

This, right here, is the "go fuck yourself" line. Wanna establish a tax to capture revenue generated as a result of UK citizens? Ok, sure, whatever. But then there's no reason to only go after the tech giants. It seems like your worry isn't so much to make people accountable for revenue generated as a result of UK citizens, but to just milk companies with deep pockets.

Yep. Hammond is under extreme political pressure to somehow raise spending without increasing taxes or borrowing. This is with Brexit looming and multinationals quietly shifting their assets out of the UK in anticipation (they’ve been relatively quiet about it as there initially was a fear that if they were too public the Mail would start a campaign to impose an exit tax on the “traitors”).

He’s tried to square the circle by going the “hotel tax” route. Tax the foreigners; voters don’t care about them.

It’s going to be very difficult to draft a tax like this in a way that works as intended and is compatible with our double tax treaties. Given the Brexit pressure on the Parliamentary draftsmans office I suspect this will be riddled with loopholes.

"We're not accusing you of being illegal; we are accusing you of being immoral."

Well, at least they're trying to go about fixing it the right way - changing the tax laws, instead of just whining that the tech companies don't pay enough taxes (while, presumably, doing the same thing for their own tax returns).

Though at some point, I do wonder what happens if the tech companies decide Europe isn't worth the hassle and simply block the continent.

Ignoring 500m of the wealthiest people on planet earth seems unlikely.

I like the idea in principle. Digital era taxation is a complicated matter and it is all too easy for customers to shop globally for services and companies to profit off user data. If we are to regulate such behavior (and to try to raise revenue from them), we need new laws.

That said, the UK could conceivably have reached a similar revenue objective simply by closing existing loopholes in their tax code. As-is the regulations smell like a cash grab from US-based firms. Not judging either way, but this seems like a solution that introduces new problem instead of fixing old ones.

I don't like how narrowly they are targeting this. Make a fair and balanced law, don't try to just go after a few companies you don't like.

I also dislike them calling Google "immoral" for using perfectly legal tax techniques. Don't like the technique, fix it. I do everything I can (legally) to get the biggest tax refund on my taxes every year. I'm sure everyone else does the same. Am I immoral for not just giving extra money to the government?

Legality does not imply morality. Animal testing is perfectly legal in some circumstances, many people would still call it immoral. It's not hard to think of more examples.

Google etc. use a loophole only the wealthy international companies can afford to use, to get an effective tax rate far lower than intended in most countries in which it does business. I'm quite content to label that legal, but immoral.

I have to have like three different accountants go over my own financial stuff, so I'm clearly no expert, but this seems like an accounting nightmare for what I imagine will be a rather large and expensive group of government bureaucrats, and will likely be an enforcement nightmare as well.

I don't like how narrowly they are targeting this. Make a fair and balanced law, don't try to just go after a few companies you don't like.

I also dislike them calling Google "immoral" for using perfectly legal tax techniques. Don't like the technique, fix it. I do everything I can (legally) to get the biggest tax refund on my taxes every year. I'm sure everyone else does the same. Am I immoral for not just giving extra money to the government?

Legality does not imply morality. Animal testing is perfectly legal in some circumstances, many people would still call it immoral. It's not hard to think of more examples.

Google etc. use a loophole only the wealthy international companies can afford to use, to get an effective tax rate far lower than intended in most countries in which it does business. I'm quite content to label that legal, but immoral.

Remember though, morality isn't a black and white. Every "bad guy" in history thought they were on the right side of morality. It's all about perspective.

Some people may say it is immoral to do animal testing. However, many others think it is immoral to not create new breakthroughs for humans just to avoid animal testing.

From Britain's perspective, it may be immoral to avoid taxes. However, from Google's shareholder's perspective, it is immoral to not do everything that can to save every penny from taxes.

"Morality" in and of itself has no place in a government judging a company. If they want to dictate something, write laws, don't just name call.

I don't like how narrowly they are targeting this. Make a fair and balanced law, don't try to just go after a few companies you don't like.

I also dislike them calling Google "immoral" for using perfectly legal tax techniques. Don't like the technique, fix it. I do everything I can (legally) to get the biggest tax refund on my taxes every year. I'm sure everyone else does the same. Am I immoral for not just giving extra money to the government?

Legality does not imply morality. Animal testing is perfectly legal in some circumstances, many people would still call it immoral. It's not hard to think of more examples.

Google etc. use a loophole only the wealthy international companies can afford to use, to get an effective tax rate far lower than intended in most countries in which it does business. I'm quite content to label that legal, but immoral.

Remember though, morality isn't a black and white. Every "bad guy" in history thought they were on the right side of morality. It's all about perspective.

Some people may say it is immoral to do animal testing. However, many others think it is immoral to not create new breakthroughs for humans just to avoid animal testing.

From Britain's perspective, it may be immoral to avoid taxes. However, from Google's shareholder's perspective, it is immoral to not do everything that can to save every penny from taxes.

"Morality" in and of itself has no place in a government judging a company. If they want to dictate something, write laws, don't just name call.